Divestiture of Non-Core Business
Situation
The client had purchased a business which sold, integrated and maintained supermarket checkout systems and distributed database management systems, anticipating synergies and cross-unit leverage; however the acquisition was never integrated and never contributed meaningfully to the client's business. Over time it became as a drain on the bottom line, the deterioration of its competitive position due to prolonged lack of investment began to accelerate, and it came to be regarded as a distraction of management time and a diversion from overall corporate strategic direction. finanSight was engaged to determine exit strategies, including possible sale of the business, to quantify and evaluate the alternatives, and to execute on the most favorable course.
Issues
A comprehensive investigation of the business (reverse due diligence/SWOT analysis) was performed as the first stage of the strategic review. This revealed a number of previously unidentified challenges:
- Intellectual property rights had not been secured for proprietary software developed as part of the product evolution;
- The head office and maintenance facility had EPA exposure;
- The primary market of the business had been in a rapid technology migration for several years, and the competitive position of the division was worse than anticipated;
- Pricing and technology changes had positioned the business for more rapid revenue decline than anticipated.
However, this investigation also identified that the division was not really a technology business; rather it was a service organization. Further, as a result of its lack of strategic fit with the parent, the business had retained an entrepreneurial management style and had maintained surprisingly high employee loyalty and customer satisfaction - and though thwarted by lack of funding, the management team had done a good job of managing customers' technology expectations.
Outcome
The information gathered in due diligence permitted client expectations on the likely range of outcomes were recalibrated and allowed for development of a rational approach to restructuring; it also permitted targeting of potential purchasers, and effective management of the sale process, including sensitive handling of issues that could have negatively impacted a transaction. The software components of the business were carved out for separate disposition and appropriate experts were engaged to determine the real estate EPA risk.
The project took a full year, and ultimately resulted in four successful transactions, two for the sale small software businesses, the third for the sale of the main business for $40+ million, and finally the sale of the former headquarters facility of the company. Not only did proceeds considerably exceeded client expectations, but the transactions gave the client strategic and management freedom and as a result of open communication with all acquirers, and excluded all intellectual property and EPA liability.